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How a Georgia Gas Station’s Bankruptcy Filing Impacted Its Breach of Contract Litigation Against Its Petroleum Supplier

Poole Huffman, LLC

Commercial litigation can take on many twists and turns. A skilled Georgia commercial litigation attorney can help you handle your dispute, whatever events take place. For example, in one recent case, which involved a contract dispute between a gas station and its petroleum supplier, the situation became more complex when the gas station filed for bankruptcy and “rejected” the parties’ contract.

The underlying contract that spawned this litigation made a Duluth-based distributor/supplier of petroleum the exclusive provider to a gas station in Suwanee. The contract also required the gas station to buy at least 60,000 gallons of product every month. The agreement additionally called for the distributor to pay the gas station a 2-cents-per-gallon rebate on each gallon the gas station purchased from the distributor Moreover, the distributor processed credit card payments for the gas station.

At a later point, the gas station fell behind on the payments it owed to the distributor. The distributor decided to take action by withholding credit card payments owed to the gas station and netting them out against the sums that it believed the gas station owed it. Along the way, the gas station declared bankruptcy. As part of that action, the gas station “rejected” the supply contract.

Later, the gas station sued the distributor for breach of contract. The lawsuit alleged that the distributor wrongfully withheld the credit card payment proceeds, and also wrongfully failed to pay the rebate. The distributor argued that the bankruptcy proceeding prevented the gas station from pursuing this breach of contract case. While the trial judge accepted this argument, the Court of Appeals stated that this was not correct.

If a party rejects an executory contract under Section 365 of the bankruptcy law, then that constitutes a breach of the agreement. That breach allows the non-breaching party to the contract to pursue legal remedies, including litigation and an award of damages, based upon the breach. Rejection does not, however, “embody the contract-vaporizing properties so commonly ascribed to it,” the court declared in its opinion. The contract is “not canceled, repudiated, rescinded, or in any other fashion terminated,” the opinion stated. The agreement is not made to disappear because of rejection; it is simply an in-existence contract that has been breached.

The gas station’s rejection of the agreement in bankruptcy impacted future performance. The gas station’s breach-of-contract lawsuit centered solely upon issues of past performance; namely, the distributor’s alleged past failure to pay sums to the gas station that it owed under the terms of the agreement. Because of this fact that the breach lawsuit did not involve future acts, but only past acts, the rejection in bankruptcy did not function as a barrier to that breach lawsuit.

For the useful advice and diligent representation you need for your commercial contract issues, rely upon the experienced Atlanta business attorneys at Poole Huffman, LLC. Our attorneys have been helping our clients protect and nurture their business interests for many years. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation.

More blog posts:

Making Sure That the Commercial Contract You Signed in Georgia Is the Agreement You Wanted, Atlanta Business Litigation Attorneys Blog, August 15, 2018

How Procedural Errors Can Derail Your Judgment Collection Activity in Georgia, Atlanta Business Litigation Attorneys Blog, July 12, 2018

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